This New Type of Cheap Data Plan May Hurt Net Neutrality

The unlimited data plan you used to be able to purchase with the latest smartphone is largely a thing of the past. Without an unlimited plan, you pay a set price for a specific amount of data each month, and every website you visit or video you watch while using your cellular connection counts against that data allowance. But Nancy Scola reports for Backchannel that a startup called DataMi is stepping into that mobile data landscape — where data caps and overage fees are becoming a key feature — and flipping the traditional model on its head with the idea of “toll-free mobile data.” But according to some critics, this new type of sponsored data could violate the principles of net neutrality.

This “toll-free mobile data” would enable users to visit websites or view content without impacting their monthly data plans. Marketers and media companies would make this content available, or employers who want their employees to have free access to work-related content could pay for it. DataMi also envisions consumers being able to purchase affordable data outside of their traditional data plans, and explains that its technology would make mobile networks more efficient by leveraging underutilized bandwidth.

Scola explains that the model is something like going to a bar with a budget for two cocktails, but knowing that a rep from a bourbon company is at the bar and willing to buy you another drink. The situation is great for you, for the bar, and for the bourbon company, and in much of the world the concept is called “zero rating,” a variation on the economics term for goods that are sold tax-free. When applied to mobile data, the term “sponsored data” is beginning to gain traction in the United States. But Mung Chiang, the Princeton University professor who founded DataMi, prefers the term “open toll-free data,” which calls to mind the toll-free 1-800 numbers touted by infomercials.

As Ad Age reported recently, FCC chairman Tom Wheeler laid out most of the coming Internet rules with clarity, but less clear on zero-rating. Carriers are increasingly turning to zero-rating because it generates revenue and appeals to customers, and assures marketers that more consumers view their promotions and engage with their content. After the FCC rules are implemented, use of zero-rating could accelerate, though they’re expected to face more careful scrutiny. It will also be assessed whether operators are hindering consumer choice with these initiatives.

What will the future look like with sponsored data?

The concept of companies covering the data demands of using their services isn’t new. Scola notes that nearly a decade ago, Amazon rolled out Whispernet to enable users to download e-books without paying for the data needed to do so. Since 2010, Facebook Zero has given users in dozens of emerging markets a data-free version of its service. And in June, T-Mobile began offering users the option to “stop burning data” when listening to apps like Pandora, SiriusXM, and Spotify under a program called Music Freedom.

DataMi aims to put that “1-800 power,” formerly available only to the Amazons and Facebooks of the world, into the hands of app developers and website publishers. DataMi has negotiated with mobile network providers to enable companies of all sizes to cover their users’ data tabs. Harjot Saluja, a mobile industry veteran who became DataMi’s CEO in August 2013, told Backchannel, “The telcos weren’t designed to create these type of solutions in the networks. We’re making it so easy that anyone can, in a matter of minutes, go on a portal and create a sponsorship for just two days of Thanksgiving.”

Scola envisions a future where the chunks of data that we use could be sponsored by a variety of different advertisers, and the balance of our phone bills could be just a fraction of the amount we pay today: just a few dollars for the data that no one has offered to cover. DataMi’s technology aims to benefit consumers, brands, marketers, employers, content producers and app developers, but there are both pros and cons to be considered with DataMi’s aim to democratize sponsored data.

What would be the positive effects of sponsored data? What about the negative consequences?

Among the pros of the situation are that customers get lower phone bills, content creators gain new users, advertisers get more attention from consumers, and mobile network operators see the stress on their networks reduced. Backchannel reports that the insight that led to DataMi was that though our increasing phone use places considerable demands on mobile networks, the demand is unevenly distributed. Mobile network operators could offer discounts for users who would be willing to use data during non-surge periods, in the same way that some electric companies offer cheaper rates to customers who opt not to run their air conditioners on a few of the hottest days of the summer.

Scola explains that while electric companies generally divide surge and non-surge pricing into hour or half-hour chunks, DataMi’s researchers found that they could make use of gaps as brief as a half-minute. The company calls those intervals of time, when networks aren’t being used to their full capacity, “micro-nights,” no matter the time of day they occur. As more companies offer “toll-free” versions of their services, consumers will be able to shift their data use — sometimes by as little as 30 seconds — to save a few dollars per month. You could download the chapters of an ebook when data is cheap, and slow or delay downloads at peak times.

Additionally, DataMi’s researchers found that users consume more data when they get some of their data for free. In a study conducted with Trove, a news curation site that spun out of The Washington Post, researchers found that data caps essentially act as a barrier to engagement, with the level of interaction closely tied to whether users were on WiFi or on their data plan. By sponsoring data, researchers could mimic WiFi usage rates.

Some see sponsored data as a threat to the idea that to compete on the Internet, you shouldn’t have to pay a gatekeeper of any kind. After all, if consumers have a choice between an app that taxes their data budget and one that doesn’t, the choice that most will make seems obvious. Critics of the concept of sponsored data argue that the idea violates the principle that no one’s Internet traffic should be prioritized over anyone else’s. Some consider it just another form of price discrimination, and others think that consumers won’t really want the Internet to look like cable TV.

But Backchannel reports that DataMi thinks such criticism ignores a key fact: that much of the commercial world runs on a framework similar to the one that sponsored data would bring to the mobile Internet. A large corporation like Pizza Hut can afford to spend more than the corner pizza shop on any kind of advertising. And some who advocate for new models like sponsored data think that imposing some sort of “purity test,” as Scola terms it, on mobile phone data ignores the fact that the people who pay for such decisions are those who rely on the mobile Internet the most.

As Backchannel notes, the debate so far is largely academic, but those behind DataMi think that it will soon become a practical question. And Scola explains that the public will need to determine which is the higher price: that of the mobile data, or of the changes that sponsored data might enact on the broader landscape of the Internet.